Fannie, Freddie Nationalized; Stocks Rally

123jump.com Staff
08 Sep, 2008
New York City

The U.S. government seized control of the two largest mortgage lenders and effectively nationalized Fannie Mae and Freddie Mac with shareholders fate unknown. The weekend nationalization of the two lenders is not likely to solve current financial mess and home prices are expected to fall during the rest of the year and in 2009. The U.S. Treasury will be forced to inject more than $200 billion to support the debt markets and values of the securities held by foreign investors and central banks.

[R]9:35AM New York – U.S. stocks soared in the early morning. Asian and European markets soared with the seizure of the two lenders Fannie and Freddie.[/R]

U.S. stocks traded higher after the U.S. government seized control of Fannie and Freddie Mac. The two mortgage lenders will also receive capital support or injection of as much as $200 billion. The two lending agencies will operate under a conservatorship and the Federal Housing Finance Agency (FHFA) will assume oversight of the management. The U.S. Treasury will acquire preferred share in the two lenders worth $1 billion in each lender and provided a guarantee of $200 billion but no immediate cash.

The government move is not likely to halt sliding home prices and continued weakness in the economy but will bolster the financial markets in the short term.

Fannie Mae ((FNM)) and Freddie Mac ((FRE)) dropped as much as 80% in the early morning trading.

Washington Mutual ((WM)) removed its chief executive Kerry Killinger as the mortgage lender continue to suffer rising losses in mortgage related securities.


Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 412.23 or 3.38% to 12,624.46, Hang Seng index in Hong Kong increased 860.99 or 4.32% closed to 20,794.27.ASX 200 index in Australia increased 190.40 or 3.90% to close 5,067.50. The KL Composite index in Malaysia increased 5.39 or 0.50% closed to 1,075.93.

The Kospi Index in South Korea increased 72.27 or 5.15% to close at 1,476.65, SET index in Thailand closed higher 19.86 or 3.08% to 665.66 and JSE Index in Indonesia increased 15.43 or 0.76% to 2,038.00. The Sensex index in India increased 461.14 or 3.18% closed to 14,944.97.

Europe Markets Review

In London FTSE 100 Index traded higher 199.50 or 3.81% to 5,440.20, in Paris CAC 40 Index increased 205.59 or 4.90% to 4,402.25 and in Frankfurt DAX index traded higher 197.45 or 3.22% to 6,324.89. In Zurich trading SMI increased 252.51 or 3.62% to 7,229.10.